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The Negatives of Co-Signing a Car Loan

Ask Savvy: I Regret Co-Signing on a Friend's Car

Dear Savvy,

I did a stupid thing about two years ago. One of my best friends was going through a life crisis and she needed help purchasing a car. (Her own credit score was bad because an old car dealership screwed her over.) So, she asked me to co-sign on her new car purchase. I don't know how I could be so stupid as to agree to it back then, but I did, thinking I was helping out a friend who was in dire need.

Long story short, she was late three times on her payments and of course my credit score has been affected. I've had to pay for her twice so that my credit score would be protected. She has her life back together now and she hasn't been late in a while but it's still something always on my mind.

Would it be better for her to continue to keep the car and make timely payments to improve my credit score? Or should I ask her to sell the car?

To see my answer please

A: It's terrible when good intentions turn into regret, and even worse when a friend takes advantage of your willingness to go above and beyond. Co-signing may seem like a benevolent thing to do when you're helping a friend in need, but you've seen what can happen when the person making the payments isn't reliable. Your credit score is affected, and as a co-signer there's nothing you can do on your own to get out of the mess.

As a co-signer you guarantee the loan but your name isn't on the car's title, and you agreed to make the payments if your friend flaked. The creditor wanted a co-signer so that they would have a more credit-worthy borrower, and when your friend missed three payments she proved to you and the lender that she's indeed a risky person to grant a loan. The loan stands whether or not the car is in your friend's driveway or back on a lot for sale somewhere.

You can't be removed from the loan unless your friend refinances the loan by herself, but she'll find that rates will be sky high with her poor credit history. She may be able to extend the amount of time on her refinanced loan to lower her monthly payments. This should be the first step in getting the loan wrapped up and have her do it as soon as possible — the last thing you want is a car repossession in your credit history.

The other option would be for her to sell the car, use the money to pay off the current loan, then your friend can figure her transportation out on her own. For peace of mind and the sake of your credit score, get out of this situation as soon as possible.

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talknerrdytome talknerrdytome 7 years
my ex-fiance and i had a joint bank account. three months after we broke up, i got a letter in the mail from our bank letting me know that our account was overdrawn by $100, it had been 30 days, and the debt would be turned over to collections if it was not paid. i went to the bank and paid it because i didn't want to have to go through the hassle of contacting my ex, but they told me the only way to get me off the account was to close it. i felt bad, i didn't want to close his bank account, so i did nothing. a few weeks later, i got a letter stating that the account was overdrawn AGAIN, by $75 this time. i went to the bank that day, paid the $75, closed the account and never regretted it.
CestLaVie CestLaVie 8 years
Just another note, from someone who has been asked to (and declined) co-sign a friends apartmemt lease who didn't have very good credit- if you are already signed to a car or an apartment, even if they are making the payments, that could turn on you if YOU go to get a new car or apartment etc... you may not be able to because you already have one in your name.
snowbunny11 snowbunny11 8 years
Wow...this really has been an eye-opening post! Good advice everyone. :) It really makes me understand how lucky I am that my family has been giving me small amounts of $$ as needed, and that my bf has covered FOUR months of our rent payment (his PhD stipend isn't enough to just be able to pay it on his own). I was unemployed for a bit after graduation, and my top priority is to pay everyone back! I kind of hate my new job, but being able to quickly pay back the people who helped me so much is an incentive to keep working hard until I start grad school! :)
snowbunny11 snowbunny11 8 years
Wow...this really has been an eye-opening post! Good advice everyone. :) It really makes me understand how lucky I am that my family has been giving me small amounts of $$ as needed, and that my bf has covered FOUR months of our rent payment (his PhD stipend isn't enough to just be able to pay it on his own). I was unemployed for a bit after graduation, and my top priority is to pay everyone back! I kind of hate my new job, but being able to quickly pay back the people who helped me so much is an incentive to keep working hard until I start grad school! :)
laluna laluna 8 years
I would never do it for a friend or family. A few years ago my mum asked me to get a laptop on credit as a xmas present for my little sister and a stereo for me, she didnt have good credit and was short of money that xmas. She promised to do the monthly payments and i had no reason not to trust her. For the first year it was fine but then she'd miss payments months at a time without bothering to tell me or make arrangments and i'd get left trying to make payments. It sucks cause normally i'd just get the laptop back and take it back to the store but i really dont want to do that to my sister. I'm still paying for it now, she's given me half a payment in the last 8 months and i'll be telling her that if she doesnt pay at least half ( i only ask for half because she makes a big deal everytime i ask for the full amount, work always seems to mess up her pay * rolls eyes*) of this months payment i'll be taking the laptop for myself (i've told my sis she can use it whenever she needs it). I'm just fed up cause i've always wanted my own computer but haven't been able to get it because i'm stuck paying for someone elses! Sorry for the rant!
laluna laluna 8 years
I would never do it for a friend or family. A few years ago my mum asked me to get a laptop on credit as a xmas present for my little sister and a stereo for me, she didnt have good credit and was short of money that xmas. She promised to do the monthly payments and i had no reason not to trust her. For the first year it was fine but then she'd miss payments months at a time without bothering to tell me or make arrangments and i'd get left trying to make payments. It sucks cause normally i'd just get the laptop back and take it back to the store but i really dont want to do that to my sister. I'm still paying for it now, she's given me half a payment in the last 8 months and i'll be telling her that if she doesnt pay at least half ( i only ask for half because she makes a big deal everytime i ask for the full amount, work always seems to mess up her pay * rolls eyes*) of this months payment i'll be taking the laptop for myself (i've told my sis she can use it whenever she needs it). I'm just fed up cause i've always wanted my own computer but haven't been able to get it because i'm stuck paying for someone elses! Sorry for the rant!
thoughtgirl thoughtgirl 8 years
super scary situation. I just hope you can get out and your friend doesn't turn into a b*tch.
angelfromlsu angelfromlsu 8 years
Boyfriends aren't forever but neither are husbands. I'm engaged to mine so I guess that makes a difference. I would never cosign for a family member though. They are so careless with credit!
beingtazim beingtazim 8 years
i wouldn't even co-sign on something for my best friend who i live with - he is great and i trust him but know he is a procrastinator and doesn't care about making payments on time for anything, plus never bothers calling credit card or other companies back to sort out payments etc.
msdyanelk msdyanelk 8 years
I did it for a NOW ex-boyfriend years ago. I was younger and thought we had what it took to stay togrther. We used my credit worthiness but he was to pay the monthly note and insurance. I learned a very valuable lesson from it which is: BOYFRIENDS ARE NOT FOREVER. I will discourage both of my children against this practice. I vowed to NEVER, EVER do it again! NEVER EVER NEVER EVER NEVER EVER NEVER EVER NEVER EVER.
angelfromlsu angelfromlsu 8 years
I cosigned a brand new car for my boyfriend and this shot our credit scores sky high. He also got a 1% interest rate for his car which is insane. When I bought a car I got an 8%! No fair!
jb3 jb3 8 years
Great Advice, Savvy! I would never co-sign for anyone outside of my immediate family.
melizzle melizzle 8 years
Haha, love the court TV references... I'd only do this for family.
melizzle melizzle 8 years
Haha, love the court TV references...I'd only do this for family.
Tari007 Tari007 8 years
Over a decade ago I asked my x-boyfriend's mom to co-sign for my car since my parents couldn't do it because they don't live in the country. I was very careful never to miss a payment. I was later asked by a friend to co-sign for his car but I said no. I think it's a bad idea to involve anyone in your finances, except for your parents.
Tari007 Tari007 8 years
Over a decade ago I asked my x-boyfriend's mom to co-sign for my car since my parents couldn't do it because they don't live in the country. I was very careful never to miss a payment.I was later asked by a friend to co-sign for his car but I said no. I think it's a bad idea to involve anyone in your finances, except for your parents.
hotstuff hotstuff 8 years
Yes, I think Savvy gave great advice. Talk to your friend and get her to refinance the car in her own name, that way you won't have to worry about this anymore! It's the least she could do for you since you helped her out in her time of need. If she refuses I think you know what kind of friend she is.
freegracefrom freegracefrom 8 years
I'm sure this was a hard lesson learned, but yes, never cosign for a friend. I had a friend with great financial habits (but not very much credit history) ask me to cosign on a loan for her and I still said no. She was very understanding. I hope your friend will let you out of this messy situation somehow!
starofsorrow starofsorrow 8 years
My brother learned that the hard way a few years ago. He brought a family line, and a few cell phones for his friends so they could all stay in touch with each other. That $400 dollar bill he got made him seriously reconsider making that decision! As it stands...I'm not a very good creditworthy borrower, and I had my uncle (who has excellent credit) cosign a loan for my car. But the way it is set up protects my uncle....my dad makes the payments on my car in my stead, and I will be paying him back as soon as I graduate and get a full time job. And pay him back for all the payments he made in my stead, as well. At least it's interest free to my dad, hmm?
starofsorrow starofsorrow 8 years
My brother learned that the hard way a few years ago. He brought a family line, and a few cell phones for his friends so they could all stay in touch with each other.That $400 dollar bill he got made him seriously reconsider making that decision!As it stands...I'm not a very good creditworthy borrower, and I had my uncle (who has excellent credit) cosign a loan for my car. But the way it is set up protects my uncle....my dad makes the payments on my car in my stead, and I will be paying him back as soon as I graduate and get a full time job. And pay him back for all the payments he made in my stead, as well. At least it's interest free to my dad, hmm?
Taadie Taadie 8 years
Thats right CaterpillarGirl. Judge Milian will discourage anyone from co-signing on anything, buying someone a cellphone plan or getting a credit card for someone else in your name.
bellaressa bellaressa 8 years
Wow, in the future you should never play around with your credit. Your credit is like a passport or ID. It goes with you for life. You need to sit your friend down and be honest. Even suggest she make the payments to you and you pay the bill so that you know the bill is on time. How horrible that you go out of your way and she is screwing you and your future.
lizrocks lizrocks 8 years
I think (for me) it's less that *I* would never (and I wouldn't) but more that a good friend would never ask that. Co-signing is a big thing that, if it goes wrong can affect you for years. Friends should no better than to put another friend in that situation in the first place.
lizrocks lizrocks 8 years
I think (for me) it's less that *I* would never (and I wouldn't) but more that a good friend would never ask that. Co-signing is a big thing that, if it goes wrong can affect you for years. Friends should no better than to put another friend in that situation in the first place.
bfly1133 bfly1133 8 years
Savvy has some good advice for you. I would sit down with your friend to have a conversation about this. Tell her that you are so happy things are going better for her now and you were glad you were able to help her in a time of need. Then segway into telling her that it's time for you to have your name taken off the loan. Discuss the various options Savvy listed of getting this to happen. If you go about this gently and postively, but firmly, I think the things should go well. Good luck!
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